How regional divergence in policy sets food companies new challenge

'Fat taxes' are increasingly on the agenda in developed and emerging markets

The regional government in the Indian state of Kerala has become the latest administration to impose a tax on less healthy foods. Ben Cooper assesses the significance of this move to multinational food companies.

The imposition of a 14.5% tax on various foods deemed to be less healthy than others by the recently-elected government in the Indian state of Kerala represents another example of policymakers making judgements about the obesogenic characteristics of certain foods, and enacting fiscal measures to reduce their consumption.

Whether this represents politicians intuiting distinctions between foods, acting on evidence-based differences, discrimination or even "demonising" remains a matter of debate, but whatever one calls it, the important thing for food companies is it is happening.

The industry's stock defence that there are no such things as bad foods, just bad diets simply isn't as persuasive as it once was. Policymakers are aware nutrient taxes are regressive and evidence for their effectiveness is limited, but faced with rising levels of obesity and diet-related ill health they are increasingly willing to try them anyway.

Politicians have less to lose by this approach than they once did. The UK government's recent move to impose a levy on sweetened soft drinks was not quietly sneaked in by a government worried about a public backlash. It was proudly trumpeted as a response to public concerns.

The move in the UK by a Conservative government also showed nutrient taxes will not be the sole preserve of left-leaning administrations. The Left Democratic Front (LDF) that now presides over the Kerala regional government, comprises the Communist Party of India (CPI), the Communist Party of India (Marxist) and some smaller parties. A policy option that appeals to devotees of both Margaret Thatcher and Karl Marx would appear to span the political spectrum.

Even where nutrient taxes might still be perceived as unpopular with voters, policymakers are clearly looking with renewed relish at their other prime advantage, namely being easy revenue earners. As healthcare costs grow, politicians are increasingly interested in the potential to hypothecate such taxes, directing the funds earned to health interventions or public health messaging around diet, which also salves possible public hostility. The Kerala government has itself placed a strong emphasis on social welfare and public health investment.

The news from Kerala also speaks to two further facets of the changing policy environment of relevance to global food companies.

It underlines how lobbying against such measures is no longer simply about industry's relationship with national governments. Increasingly, regional and municipal administrations are eyeing nutrient taxes, and this trend seems certain to increase.

Perhaps of even greater significance for multinational food firms is nutrient taxation is now on policy agenda in emerging markets. Moreover, this trend is also seen as significant – and extremely welcome – by health campaigners.

Figures published recently by the World Health Organization (WHO) reveal how over-nutrition is becoming an increasing health problem in the developing world. The WHO's Commission on Ending Childhood Obesity report stated that, based on current trends, some 70m young children around the world will be overweight or obese by 2025, but the WHO estimates the rate of increase to be 30% higher in low- and middle-income countries than in developed countries. The previous rule of thumb that under-nutrition will be the prominent concern in developing countries simply no longer applies.

The WHO's work on childhood obesity forms part of its broader global strategy to tackle non-communicable diseases (NCDs) in general. According to WHO statistics, the number of premature and avoidable deaths from NCDs rose from 14.6m in 2000 to 16m in 2012, with around three-quarters of all deaths from NCDs, and 82% of those considered to be avoidable, occurring in low- or middle-income countries.

Over-nutrition is clearly an increasingly worrying challenge for governments in the developing world, and it is 'westernisation' that is seen as the primary culprit, as consumers in emerging markets aspire to eat in fast food chains and are able to afford more calorie-dense foods.

Some packaged foods are being taxed by the Kerala government but so far the principal targets for what it has dubbed a "fat tax" are fast food chains. Global food companies may take some comfort fast food restaurants and soft drinks manufacturers may draw most fire from policymakers but the direction of travel, both in developed and emerging markets, will be a cause for concern nonetheless.

To a degree, the correlation between increasing obesity in emerging markets and western influence simply reflects economic development. In developing countries, brands like KFC and McDonald's are aspirational, and so far there has been a correlation between relative affluence and prevalence of obesity and overweight, whereas the reverse tends to be the case in developed countries. Obesity may not be the most welcome 'First World' attribute that developing countries will wish to acquire but that appears to be the reality.

However, the relationships global food manufacturers may have with national or regional governments in developing markets may be quite different from those established links they have built up over decades with political institutions in the developed world. While the rhetoric from the WHO would suggest concern about the level of influence multinationals can wield over governments in poorer countries keen to attract investment, the companies themselves may see these often less stable and rapidly evolving political environments as intrinsically harder to predict and influence.

India, for example, has been an attractive investment target for global companies for many years but has always insisted on accepting inward investment on its own terms. The Kerala tax could be seen in the same context. Might global food companies have to accept that governments in developing markets, concerned about the health impacts of the investment by food companies in their countries, will be attracted by what appears to be a relatively simple fiscal solution?

If the consumption and consequent unwelcome health trends in emerging markets are simply mirroring those in developed countries, the simple answer for food and drink companies is to ensure they offer the same safeguards – such as controls on exposure to children and reducing nutrients of concern through product reformulation – that they have been generally moving towards in the developed world.

Health campaigners, and the WHO, would most certainly maintain that standards by which companies operate vary between developed and developing countries, as does the level of regulation, though many food companies would claim to exercise an equal level of social responsibility across all the markets in which they operate.

The International Food and Beverage Alliance (IFBA), a coalition of global food and beverage companies, was set up arguably to make precisely that case, and act as a vehicle through which those companies can engage with the WHO and its efforts to reduce obesity globally. However, the IFBA is only 11 companies, albeit very large ones which have generally engaged positively on diet and health issues. At large, there will be a mixture of the good, the not so good and the laggards.

What the development in Kerala, the WHO figures and the commitments of the members of the IFBA all speak to is the regrettable fact that with the benefits of economic development come problems that developed markets have already been coping with for some time.

With that in mind, it would be surprising were policymakers in emerging markets not to consider regulation and fiscal measures as a potential means of forestalling problems they have seen so vividly foreshadowed in developed countries, and which the voluntary measures and self-regulation prevalent in those countries have ultimately failed to prevent.

By the same token, as the rhetoric of the WHO often underlines, it would be inexcusable were international food companies not to learn from their experience in developed countries, and take all steps to ensure the evolution of their business practices in Western countries fully informs how they act in emerging markets.